National Association of Home Builders Discusses Economics and Housing Policy

The Bureau of Labor Statistics (BLS) reported the Consumer Price Index for All Urban Consumers (CPI-U) remained unchanged for the second month in a row. An easing in prices across much of the energy commodities complex weighed on topline CPI growth throughout the fourth quarter of 2011, offsetting the gains in the core (all items less food and energy) and food CPIs. For the calendar year as a whole, CPI-U increased 3.2%–roughly double the rate of increase observed during 2010.

Core CPI has posted gains in 35 of the last 36 months, but even with such a long period of nearly uninterrupted growth the overall rate of price level growth for non-food and non-energy consumer goods and services has remained modest. Indeed, compared to December 2010 core CPI has increased 2.2% and at a relatively tepid rate of 1.4% per annum since 2008.

Among the various subcomponents of core CPI, the indexes for shelter, recreation, medical care, and tobacco all posted increases, offsetting weaker readings for used cars and trucks, new vehicles, and apparel. The shelter index registered its 16th consecutive month-to-month increase, but as has been the case with many types of consumer goods and services, the rate of increase has been modest with a gain of 1.3% for calendar year 2011.

With apartment vacancy rates tightening appreciably over the past few quarters, rental rates have started to rebound. Indeed, NAHB’s measure of real rental rates, which is constructed from the CPI for rent of primary residences and overall CPI, increased at an average annualized rate of 2.6% during the fourth quarter of 2011. Apartment vacancy rates could decline further over the course of 2012 as household formations among the key renter age cohorts recover. In turn, real rents would likely increase over the near term.